Section 1.0. UK Consumer Discretionary Sector Landscape, Trends & SWOT Analysis

As the UK economy is holding up better than anticipated, consumer discretionary and financials sectors were among the top gainers in January 2023. Also, consumer spending remained positive for travel expenditure and luxury goods. Moreover, manufacturers and businesses are focusing on bringing process efficiencies and avoiding working capital leakages to weather the market uncertainties and deliver the incremental shareholders’ value.  As retailers are looking beyond the challenges faced in the past two years, it is imperative to capitalize on emerging consumer behavior and advancing shopping experience through technology, innovation, and new business models. The UK Retail sector includes players from various industries, such as entertainment, fashion, food, general merchandise, health & beauty, home, sports & leisure, and technology. As per the Department of International Trade, the UK is pioneering in e-commerce and retail technology as more than £92 billion was generated through online sales in 2021, which is highest in Europe. The Government is actively supporting the UK-based Companies to expand into emerging markets.

British retail sales looked steady in February 2023, after falling in January 2023 due to cost-of-living crisis. Moreover, demand is expected to pick up as 2023 progresses. Adjacently, British consumer price inflation eased to 10.1% in January 2023 post hitting a 41-year high of 11.1% in October.

Section 1.1. Trends in the Consumer Discretionary Sector

Section 1.2. SWOT Analysis

Section 2.0. Sector Risks & Opportunities

Section 2.1. Risk Exposures to Consumer Discretionary Sector

Section 2.2. Consumer Discretionary Sector Outlook

The Bank of England has stated that the country is on track for a prolonged recession. However, inflation is expected to subside gradually in 2023, while the government is taking initiative to towards energy price guarantee to ease out the pressure on households and businesses. With easing of inflation and improvement in consumer confidence, retail sales and subsequent volume are likely to grow, especially towards the second half of 2023. We can also expect acquisitions of online players by the multi-channel operators and bring operational synergy.

In the long run, retailers should take advantage of increasing online penetration and smartly leverage a mix of physical and digital touchpoints to induce customers to make purchases.

After gaining insights into the Consumer Discretionary sector, we would look at the business model of two relevant players listed on the London Stock Exchange.

Section 3.0. Watches of Switzerland Group PLC (‘Buy’ at GBX 830.50, closing price as of 28 February 2023)

3.1 Company Details

3.2. Key Metrics in Pictures

3.3 Valuation and Technical Guidance

 (Source: REFINITIV, Analysis by Kalkine Group)

Section 4.0: Fuller Smith & Turner PLC (‘Speculative Buy’ at GBX 506.00, closing price as on 28 February 2023)

4.1 Company Details

4.2. Key Metrics in Pictures

4.3 Valuation and Technical Guidance

 (Source: REFINITIV, Analysis by Kalkine Group)

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 28 February 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/ or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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